Ford Motor Company, the US car manufacturer that is one of the leading borrowers in the bond markets, is struggling to allay investorsâ fears over its credit rating, which is precariously close to junk status.

Last month, it became the most actively traded company in the single-name credit default swap (CDS) market, according to Fitch Ratings. Investors use credit default swaps to hedge their liabilities in the bond markets.

Fitch said the increase in CDS trading of Ford reflected not only a rise in the number of deals included in its index but also “a greater concentration of Ford bonds in synthetic collateralised debt obligation transactions, which in turn partly reflects the continuing unease surrounding Ford’s high triple-B rating”, which is on negative outlook with Fitch.

Ford has a high triple-B rating with a negative outlook from Moody’s Investors Service, while rival rating agency Standard & Poor’s (S&P) downgraded Ford to low triple-B, one notch above high-yield, and assigned a stable outlook to the company in November.

S&P drew widespread criticism during a conference call at the end of October after it placed Ford’s rating on CreditWatch negative and refused to rule out the possibility of a further downgrade into junk territory. Credit analysts accused the agency of being “evasive and unwilling to give away any hint with regards to its review of Ford”.

Many investors are unable to hold junk bonds in their portfolios and another downgrade would prompt widespread forced selling of Ford bonds, which are among the most commonly available.

However, corporate bond bankers said the volume of trading of Ford’s credit default swaps and bonds, which were the most actively traded investments in the global corporate bond markets last year according to MarketAxess, was in line with the broader auto sector.

One London syndicate head said: “Everyone is looking at the auto sector as the place to make money this year, so the price volatility is natural. The issue is not so much that investors are concerned about the situation at Ford, but more that they are taking a stance on how the US economy, with which the auto sector is closely linked, will develop in 2004.”

Fitch said car manufacturers occupied four of the top 10 places in the CDS market to January, which supports the view that investors are taking a view on the sector rather than Ford alone.

Ford reported a fourth quarter net loss for 2003 of $793m earlier this month, compared with a loss of $130m a year earlier. The company is also lagging General Motors, its US rival, in addressing its pension scheme, according to credit analysts.